The Pandemic-Related Public-Private Sector Pay Gap is Finally Narrowing

The Pandemic-Related Public-Private Sector Pay Gap is Finally Narrowing 

According to today’s Employment Cost Index report, wage disinflation slowed, and so did real wage growth. Private sector wages and salaries rose 4.5% over the year, down only 0.1 percentage points from last quarter, and over-the-year real wage growth fell from 1.7% to 0.8% in Q3. Wage growth for public sector workers surged, however, after lagging behind since early in the pandemic.

Over the quarter, private sector workers saw their wages and salaries grow 1.0%, but state and local government workers saw their wages grow 1.8%. Those catch-up increases for public sector workers are necessary to bring their real wages back up to the pre-pandemic trend and to close the private-public pay gap that has emerged since the pandemic. That pay gap is largely responsible for enduring public sector staffing shortages, including acute teacher shortages around the country.

While belated public sector wage growth is necessary to ensure that the public sector is a competitive destination for talent, those increases are slowing wage disinflation and adding some inflationary pressure. Other pay gaps that have widened since the pandemic—like those between production and service sector workers, and those between non-union and union workers, have not yet begun to narrow. But we can expect to see service sector workers, particularly unionized workers, continue to push for large wage increases to restore their purchasing power in the coming months.